Steps to deal with rising fuel prices likely this week

Facing “crisis situation” created by rising fuel prices, the government is likely to come out with “some steps” this week to deal with record high petrol and diesel rates, a senior official said on Tuesday.

The government may not rely only on cutting excise duty, which makes up for a fourth of the retail selling price, the official said but did not elaborate.

“Rising fuel price is a crisis situation for government and it has to be handled with combination of steps. Finance ministry is consulting the petroleum ministry on rising crude prices,” he said.

More than a week after the state-owned oil firms ended a 19-day pre-Karnataka poll hiatus on revising fuel prices, petrol and diesel rates have touched record highs. Petrol costs Rs 76.87 per litre in Delhi and diesel costs Rs 68.08 a litre. In last nine days, petrol price has risen by Rs 2.24 a litre and diesel by Rs 2.15.

Rates vary from state to state depending on the incidence of local sales tax or VAT. The prices in Delhi are the cheapest among all metros and most state capitals.

Refusing to discuss steps under consideration, the official said the government has to be mindful of its fiscal maths while dealing with the option of cutting excise duty.

“We cannot rely on excise duty cut alone, although I am not ruling out a possibility of cutting excise duty. We have to be mindful of any fiscal impact of any excise cut on fuel,” the official said.

Both the Centre and states, whose VAT makes up for 20-35 per cent of the retail cost and have gained from the rising oil prices, need to take measures, he said.

“Some steps to deal with rising oil prices are likely to come this week,” he added.

The rupee, which has fallen to 16-month low of 67.97 against the US dollar, is also playing a role in high oil bill, he said.

The central government levies Rs 19.48 a litre of excise duty on petrol and Rs 15.33 per litre on diesel. State sales tax or VAT varies from state to state. Unlike excise duty, VAT is ad valorem and results in higher revenues for the state when rates move up.

In Delhi, VAT on petrol was Rs 15.84 a litre, and Rs 9.68 on diesel in April. Today, it is Rs 16.34 on petrol and Rs 10.02 a litre on diesel.

Every rupee cut in excise duty on petrol and diesel will result in a revenue loss of Rs 13,000 crore.

The government had raised excise duty nine times between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October last year by Rs 2 a litre.

Subsequent to that excise duty reduction, the Centre had asked states to also lower VAT. Just four of them — Maharashtra, Gujarat, Madhya Pradesh and Himachal Pradesh — reduced rates while others, including BJP-ruled ones, ignored the call.

In all, duty on petrol rate was hiked by Rs 11.77 per litre and that on diesel by 13.47 a litre in those 15 months that helped government’s excise mop up more than double to Rs 2,42,000 crore in 2016-17 from Rs 99,000 crore in 2014-15.